Second Circuit prohibits § 1782 discovery in international commercial arbitration

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International Arbitration Alert

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Whether 28 U.S.C. § 1782 permits discovery in connection with an ongoing commercial arbitration has been the subject of considerable debate and disagreement among the federal courts around the United States, especially since the US Supreme Court’s decision in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004).

The Second Circuit’s recent decision in In re: Application and Petition of Hanwei Guo, Case No. 19-781 (2d Cir. 2020) – in which the Second Circuit determined, consistent with its past precedent, to decline a request for discovery assistance in connection with a commercial arbitration – further cements a circuit split on the issue and counters a recent trend by US circuit courts allowing such discovery.

Prior judicial considerations

28 U.S.C. § 1782(a) permits any party or other interested person involved in proceedings before a foreign or international tribunal, or the tribunal itself, to make a request to a US federal district court to compel discovery from a person or entity found in the district in which the court sits. Importantly, 28 U.S.C. § 1782 allows parties to obtain broad discovery in the US, including depositions and from non-parties.

Until recently, the only circuit courts that had addressed the issue of whether a private international commercial arbitration panel is  a “foreign or international tribunal” for the purposes of enabling discovery assistance under 28 U.S.C. § 1782 were the Second Circuit, in National Broadcasting Company, Inc. v. Bear Stearns & Co., Inc., 165 F.3d 184 (2d Cir. 1999), and the Fifth Circuit in Republic of Kazakhstan v. Biedermann International, 168 F.3d 880 (5th Cir. 1999). In both cases, the courts held that commercial arbitration tribunals are not “tribunals” for the purposes of § 1782.

Almost two decades later, however, in Servotronics, Inc. v. The Boeing Company; Rolls-Royce Plc, No. 18-2454 (4th Cir. 2020) and Abdul Latif Jameel Transportation Co. Ltd. v. FedEx Corp., 939 F.3d 710 (6th Cir. 2019), the Fourth and Sixth Circuits permitted § 1782 discovery in aid of international commercial arbitration.  Our prior alert on Servotronics can be found here.   

The In re Guo case marked the first opportunity for the Second Circuit to finally decide on the issue in the wake of the Intel case, as well as this more recent jurisprudence from its sister courts, and in the wake of its own decisions seemingly expanding the scope of 28 U.S.C. § 1782 based on different aspects of the statute.

The present case

In In re Guo, the underlying arbitration arose out of a series of transactions through which Guo, an investor in the Chinese music streaming market, sold his shares in various companies known as Ocean Technology, Ocean Music and Ocean Culture (Ocean Entities) for less than they were allegedly worth.  Guo initiated arbitration under the auspices of the China International Economic and Trade Arbitration Commission (CIETAC) against the founder of Ocean Entities, and several other entities, claiming that the respondents had defrauded him.  In December 2018, Guo filed a petition for discovery pursuant to § 1782 in the US District Court for the Southern District of New York.  The district court denied Guo’s application based on the Second Circuit’s binding precedent in NBC v. Bear Stearns.  Guo appealed.

The Second Circuit affirmed the district court. At its core, the court’s analysis rested on its view that NBC v. Bear Stearns remained binding based on the “longstanding principal” that “a three judge panel is bound by a prior panel’s decision until it is overruled by either this Court sitting en banc or by the Supreme Court.” Guo claimed that the Supreme Court’s decision in Intel displaced the Second Circuit’s interpretation of the statute in NBC. Though it noted that district courts in the Second Circuit have split on whether NBC remains intact post-Intel, the court rejected this argument and concluded that NBC remained binding. In particular, the court noted that the Supreme Court’s passing reference to “arbitral tribunals” in Intel does not cast “sufficient doubt” on the reasoning or holding of NBC and, therefore, NBC – and its holding excluding international commercial arbitration from the scope of § 1782 – remains binding in the Second Circuit. Though the court appeared to endorse the “thorough analysis” in NBC, the court’s decision was not a substantive endorsement of NBC and instead was a jurisprudential analysis of the decision’s precedential value.

Having concluded that the Second Circuit’s interpretation of § 1782 in NBC remained binding, the court in turn considered whether CIETAC arbitration is a private international commercial arbitration. To this end, the court considered whether CIETAC possessed the functional attributes most commonly associated with private arbitration. It found that (1) CIETAC functions essentially independently from the Chinese government in the administration of its arbitration cases, (2) China’s enforcement authority in respect of CIETAC’s decisions does not render it a public entity and (3) CIETAC’s jurisdiction flows exclusively from the parties and not any governmental grant of authority. According to the court, the totality of these factors led to the conclusion that CIETAC arbitration is a form of private commercial arbitration for which federal court assistance under § 1782 is unavailable.

The significance of In re Guo

The recent decisions of the Fourth and Sixth Circuits in Servotronics and Abdul Latif Jameel have substantially altered the playing field. For 20 years, no circuit court had endorsed the view that § 1782 authorized discovery assistance for parties in an international commercial arbitration. Indeed, the Second and Fifth Circuits, in NBC and Biederman, were the only courts to have decided this issue and, for both, decided in the negative.

In In re Guo, the Second Circuit affirmed that NBC was not superseded by Intel, and therefore remains binding in the Circuit. However, this was because the panel in In re Guo did not have the authority to reconsider its prior precedent, which may only be done by the circuit court sitting en banc. Guo may now seek a rehearing en banc, in which it may ask the circuit court to reconsider its prior precedent in NBC on the merits. Alternatively, it may also seek certiorari to the US Supreme Court based on the clear division of authority among the circuit courts.

The Second Circuit’s decision in In re Guo is not likely to be the last word on this subject. First, the Ninth Circuit is expected to decide a similar case in the coming months, which will add considerable new weight to one side or the other of the current circuit split. Second, an en banc review of In re Guo, if sought, may result in the Second Circuit’s withdrawal from or endorsement of NBC. The Supreme Court, which has heretofore declined to weigh on this issue since deciding Intel, may well opt to permit these scenarios to unfold before intervening to decide this matter once and for all. 

To learn more about the implications of this decision, please contact any of the authors.